Institutional substitution, affiliate contingency, and foreign affiliate performance

Abstract

Basing the institution-based view, this article investigates the separate and joint effects of economic, political, and social institutions between or within subnational regions on foreign affiliate performance, and the relative magnitude of these three institutional constituents given affiliate contingency. A longitudinal analysis containing 483,335 foreign affiliate-year observations that include 127,211 foreign affiliates in 31 Chinese subnational regions during 1998-2008 shows that foreign affiliate performance varies noticeably both under separate and joint subnational institutions. The results suggest that economic, political, and social institutions separately have a positive relationship with foreign affiliate performance, and mutually substitute for each other in facilitating foreign affiliate performance. Furthermore, economic, political, and social institutions can more facilitate performance of foreign affiliate with larger size, or larger innovative outputs. The contributions and implications for future research and practice are discussed.